DB Appraisal Services, Inc can help you remove your Private Mortgage InsuranceWhen buying a house, a 20% down payment is typically the standard. The lender's risk is oftentimes only the remainder between the home value and the balance due on the loan, so the 20% provides a nice cushion against the costs of foreclosure, selling the home again, and natural value changes in the event a purchaser doesn't pay.
During the recent mortgage boom of the mid 2000s, it was widespread to see lenders making deals with down payments of 10, 5, 3 or sometimes 0 percent. How does a lender handle the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower is unable to pay on the loan and the market price of the home is less than what is owed on the loan.
PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and many times isn't even tax deductible. It's beneficial for the lender because they obtain the money, and they are covered if the borrower defaults, separate from a piggyback loan where the lender absorbs all the damages.
How home owners can keep from paying PMIAs a result of The Homeowners Protection Act of 1998, lenders are forced to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount on nearly all loans. The law promises that, at the request of the homeowner, the PMI must be abandoned when the principal amount reaches just 80 percent. So, acute home owners can get off the hook a little early.
Because it can take a significant number of years to arrive at the point where the principal is just 80% of the original amount borrowed, it's essential to know how your Alabama home has increased in value. After all, every bit of appreciation you've achieved over the years counts towards abolishing PMI. So why pay it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends indicate declining home values, be aware that real estate is local. Your neighborhood might not be following the national trends and/or your home may have acquired equity before things cooled off.
The difficult thing for most consumers to figure out is just when their home's equity rises above the 20% point. A certified, Alabama licensed real estate appraiser can definitely help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At DB Appraisal Services, Inc, we're masters at analyzing value trends in Helena, Shelby County, and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will generally eliminate the PMI with little anxiety. At that time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: